Indian government bonds rose on Monday after data showed the economy grew faster than expected in the June quarter and on ample liquidity, but broader gains were capped by the reality that foreign institutional investors have almost exhausted their entire allocation of debt.
However, foreign institutional investors have almost reached the limit of debt they can buy, and a failure to increase it would mean India could miss out on any further flows. Foreign funds have bought debt worth around $17 billion so far this year. “Although the new GDP data is encouraging, we need to see more signs that the government is boosting its revenue and a commitment that inflation will be brought under control,” said Dwijendra Srivastava, head of fixed income at Sundaram Asset Management Company in Mumbai. “The 10-year bond may still hover around these levels and data on inflation will be watched.”
The 2024 10-year bond yield, which became the benchmark last month, fell 1 basis point to end at 8.55%. In the overnight indexed swap market, the benchmark five-year swap rate ended 2 bps lower at 8.02% and the one-year rate ended steady at 8.45%.
Volumes were sluggish after the long weekend.